The promise of physician-owned practices: Optimism in the AMA Physician Practice Benchmark Survey

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The following is a guest post from Aledade co-founder and CEO Dr. Farzad Mostashari.

In 1897, a reporter received a letter from an American writer in London with a now-famous line: “The report of my death,” Mark Twain wrote, “was an exaggeration.” Today, small, physician-owned practices could say the same, about a somewhat different report.

This report comes from the American Medical Association’s Physician Practice Benchmark Survey, a nationally representative survey of post-residency physicians. This year’s survey covered 3,500 physicians — each of whom must provide at least 20 hours of patient care per week, not be employed by the federal government, and practice in one of the 50 states or the District of Columbia. The surveys have been conducted in 2012, 2014 and 2016 — so we have three years of comparable data.

At a surface level, some of these numbers were less than encouraging. The percentage of physicians who own their own practice has been on the decline. In 2012, 53.2% of physicians owned their own practice. In 2016, 47.1% did. To some, crossing that threshold of 50% was a signal that the anti-competitive trends in our healthcare system have pushed physician ownership to the side.

I don’t intend to claim there aren’t real concerns around competition. Recently, I’ve joined Carnegie-Mellon’s Martin Gaynor and Paul Ginsburg from the Brookings Institution in writing about the need for a new competition policy in healthcare. Americans today are paying the price for steady consolidation in the hospital and health insurance markets.

But the benchmark survey shows something else. If you dig into the data, you’ll see that the increase in hospital ownership has flatlined, the majority of physicians today still work in small practices and physicians are most likely working for other physicians. In other words, the report of the death of small, physician-owned practices, as Twain would say, was an exaggeration.

First, probably the most interesting quantitative and qualitative points of the report came in a section on hospital ownership. In 2014, the survey found that about a third of physicians were either directly employed by a hospital or in a hospital-owned practice. In 2016, that share had not changed.

Not only had the proportion of physicians in hospital employment flatlined, but the rate at which hospitals were buying up practices had slowed. In 2014, 24.5% said that a hospital had purchased their practice in the past five years. In 2016, that dropped to 21%.

The AMA found some explanations. In early 2016, Medscape interviewed practice management consultants. They explained that the pace of hospital acquisitions had slowed because hospitals had “as many practices as they can handle at this point.” They said hospitals were trying to focus on doing “a better job of organizing what they have.”

A second feature of the survey was that, as hospitals hit pause on acquisitions, small practices are thriving. A physician today is much more likely to work in a small practice. According to the AMA, more than 57% of physicians work for practices with 10 or fewer physicians. Only 13% work in practices with 50 or more.

Finally, most physicians work for other physicians. Nearly 56% of physicians work in practices wholly owned by physicians. That means they have an ownership stake in their own practice, or are employed physicians or independent contractors who work for other physicians. That percentage dropped slightly from 2012 to 2014, but from 2014 to 2016, it basically stayed the same.

Hospital acquisitions have flatlined. Most physicians are working in small practices. Physician ownership is still the dominant model. And this is good news for our healthcare system’s movement to a value-based payment future.

Small, physician-owned practices offer more personalized care and are more responsive to patient needs. They have lower average costs per patient, fewer preventable hospital admissions, and lower readmission rates than large, hospital-owned practices. And primary care doctors can influence up to 85% of downstream costs in our nation’s healthcare system.

The simple fact is that the data from AMA shows that small, physician-owned practices are neither irrelevant nor are they going extinct. In fact, they're in the best position for a new era of better healthcare at lower costs. They're our guides toward a better healthcare system, and they have just started to show their true potential.